TDS ON NRI

This query is : Resolved

Pankaj Jhawar (Querist)
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05 April 2010 After section 206A of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2010, namely:

206AA. Requirement to furnish Permanent Account Number.(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:

(i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of twenty per cent.

My query is what will happen in case of Tax treaties where u/s.195 withholding tax is Income tax or Tax under ADT agreements which ever is lower.

VIKAS AGGARWAL

VIKAS AGGARWAL (Expert)
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05 April 2010 dear pankaj,

provision of section 206AA have overriding effect on whole of the income tax act including the provision of section 92 which give the benefits of tax treaties.Therefore in case the payee does not have PAN payer is liable to deduct tax @ 20%.

Pankaj Jhawar

Pankaj Jhawar (Querist)
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06 April 2010 Normally NRI will not have a Indian PAN so whether we will deduct TDS @20% everytime we make payment to them for any purpose for which TDS is deductible?

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VIKAS AGGARWAL

VIKAS AGGARWAL (Expert)
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06 April 2010 In my opinion the process would be as under,

1. first check whether the sum payable is chargeable to tax or not if not then no requirement of applying the provision of section 206AA.

2. If sum is chargeable to tax then check whether the payee has PAN in india if he has then apply normal rate as applicable else apply the provision of section 206AA and deduct tax @ 20%.